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Why Price Transparency Is So Unclear

Before you agree to any appointments or services at the doctor’s office, wouldn’t it be nice to know how much everything will cost — so you can feel confident you’re getting a good deal, can plan for the expense, or can choose to look elsewhere?

Price transparency is a concept that is increasingly getting kicked around in the health care field because, for the most part, it doesn’t exist right now. We only know what we’re charged once the bill shows up in the mail or our inbox.

While that may sound like an easy and reasonable request to make as a patient, it’s really not. Here’s why: There are a lot of other constantly moving parts and partners behind the scenes working to ensure they make money. It is what businesses do — but it also speaks to why transparency may be an important issue to focus on in 2017.

A recent analysis of 15.3 million doctor's office visits shows that physicians get paid significantly more if they are part of a large provider group. Yet insurance companies can dramatically reduce what they pay doctors for those visits if they've consolidated their share of the marketplace.

Related: It's Time the Health Care System Serve the People [1]

The study in Health Affairs found, for example, that an insurance company in 2014 with only a small percentage of patients in the market — less than 5 percent — typically paid $86 for a basic office visit.

Increasing its market share of patients covered in that market from 5 to 15 percent reduced the average amount the insurer paid to $70, or 18 percent less.

But even then, those amounts varied depending on the size of the health care provider.

“Let the free market set charges and payments, arriving at a payment acceptable to both payers and providers," said one physician.

Essentially, what doctors and insurance companies make and charge depends largely on their size, which is also constantly changing. Nailing anything down when it comes to costs is a challenge, at least with our current health care system. The model also has us paying more for health care as providers consolidate while smaller practices and more rural hospitals get squeezed.

The phenomenon illustrates two economic concepts working against each other, said Brian Joondeph, M.D., MPS, a Denver-based physician and writer. The first is a monopoly, which is when an entity is the sole provider of a service, in this case large multi-physician practices. The second is a  monopsony, when an entity is the sole purchaser of a service.

Monopolies in health care eliminate the competition for providing medical service, and push charges, and ultimately medical care costs up. Monopsonies, on the other hand, eliminate competition for purchasing the same medical services, driving provider payment, or insurance company costs, down.

Related: The Biggest Fallacy About Repealing Obamacare [2]

“Both concepts are occurring as medical providers and insurance companies consolidate, growing their respective market share. Consolidation of physicians pushes costs up and consolidation of insurance payers drive costs down,” Joondeph told LifeZette.

Ultimately, these opposite cost drivers may cancel each other out, leaving medical costs neutral. But the more likely logical conclusion if this consolidation continues, he said, is what is happening across the pond in England: the National Health Service. “One single entity pays all medical bills and employs all physicians.”

The other solution, said Joondeph, is this: “Let the free market set charges and payments, arriving at a payment acceptable to both payers and providers. This concept is working nicely in the elective surgery market — plastic and refractive surgery are two prime examples. Competition keeps costs in check, value is rewarded, incompetence is punished. Patients win by receiving high value medical care at a reasonable cost.”±